Foodservice inflation now at 2.9%

Feb 24th 2017

Low supply and rising costs of key items including vegetables, sugar, oils and fats and hot drinks has led to a 2.9% increase in foodservice prices in January 2017 compared to the start of 2016.

That is the headline finding from the latest edition of the Foodservice Price Index from Prestige Purchasing and CGA Strategy. It continues an upward trend in wholesale foodservice prices, and widens the gap between inflation in the sector and consumer-side inflation as measured by the Consumer Price Index. Rising oil costs and the weak pound have added to the pressure on prices throughout the supply chain in the last year.

Foodservice price inflation was driven in January by a dramatic hike in the price of vegetables, which was up by 10.4% compared to January 2016. The increase is a consequence of poor weather conditions across Europe that have cut into supplies of many common items including salad leaves and courgettes. That has prompted widespread media coverage of a crisis in the supply of many vegetables, prompting even supermarkets to ration or withdraw items where stocks are limited.

Inflation is also evident in oils and fats, where prices are 9.5% higher than a year ago, in part because of low palm oil supply. Prices of sugar and related products are up by 4.9% year on year thanks to lower exports from key markets and minimum price contracts introduced into the market by businesses across the sugar industry. Coffee prices have jumped by the same margin as demand continues to outstrip supply around the world, while tea prices have been hit by droughts in Kenya.

But the Foodservice Price Index also reveals some reasons for optimism about pricing in the sector as 2017 wears on. Domestic production will begin to kick in soon and should reduce reliance on more expensive imports, and there is evidence that butter prices have started to fall in the last few weeks. There is also relief in the milk, cheese and egg category, where prices were 1.3% lower in January than a year earlier—though reduced domestic production and rising farm-gate prices for milk could soon put an end to this downward trend.

Christopher Clare, Head of Consulting & Insight at Prestige Purchasing, said: “What we are seeing in this month’s Foodservice Price Index figures is the pass-through of sharp increases in the commodity prices of many imported salad products and vegetables. Whether it reflects the full extent of the increases remains to be seen, and next month’s figures will be key.”

Phil Tate, Chief Executive of CGA Strategy, said: “The latest edition of our Foodservice Price Index shows that pressure on pricing continues to mount. The broad range of categories facing inflation is a cause for concern, and it makes the need for resourceful purchasing strategies and careful price monitoring all the more apparent.”

The Foodservice Price Index is jointly produced by Prestige Purchasing and CGA Strategy using data drawn from over 50% of the foodservice market and around 7.8m transactions per month. More information on specific categories is available on a subscription basis.